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Real Estate Tax vs Property Tax: What's the Difference?

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Real Estate Tax vs Property Tax: What's the Difference?

Real Estate Tax vs Property Tax: What's the Difference?

Real estate is taxed by the government in several ways. Property tax is the same as real estate tax, but not the same as personal property tax. Learn more here.

What does the month of April make you think of? Easter? April Showers?

Or something less enjoyable entirely, like tax day? Taxes are the reason we have things like roads and public schools, but no one enjoys paying them.

Nor does the average person have a good understanding of the tax process. One of the most frequently asked questions is what's the difference between real estate tax vs property tax?

That question has a short and long answer. It depends on how in depth you want to go. See what we mean in the guide below.

Real Estate Tax vs Property Tax

When it comes to determining what you need to pay on your home, yes, real estate tax and property tax are the same thing. You don't have to pay two different amounts to the government.

But property tax is a bigger category. Your home isn't the only thing you own, right? If you have mobile assets, you have to pay property tax on those too.

Let's say you have a big RV that you like to take out in the summers. Is that moveable property? It sure is. The same goes for boats and other recreational vehicles.

If you had to register the title and pay fees on it when you bought it, you'll have to pay property taxes.

Real Estate Tax Items

We've already talked about how you'll pay property/real estate taxes on your home - but what about the land it's on? Do you have extra acreage out back? You owe taxes on that land.

Or maybe you have land that you like to go hunting or fishing on. You owe taxes on that as well. Real estate taxes apply to anything that is land or attached (permanently) to the land.

Barns, large workshops, investment properties - all of those properties are included.

What Does the Government Do With This Money?

That's a good question. Since you pay those taxes, you have the right to know where the money's going. Most of the time it goes back into city resources you use every day.

Like roads, traffic lights, and even street cleaners. If you live somewhere where it snows, your real estate taxes help pay for the snow plows that make life that much easier.

Your home taxes may even be helping pay your child's teachers' salary. Public schools profit from the real estate tax umbrella as well.

If your local government is working on building any sort of public use structure, your money could go there too. Basically, if you drive around your city, you'll see your money at work everywhere.

The List of Property Tax Items

The property taxes depend on where you live. The state may say one thing, while your local city says another. In states where the local and state laws differ - you have to pay taxes on both.

Let's look at Florida since it's such a populous state. In some counties in Florida, they require you to pay taxes on anything material that helps you make money.

So if you own a small handyman business, that would apply to your truck, your tools, and your backyard workshop. If you have a business and that business has an office, you owe taxes on not only the office space but on all the things inside it. That means computers, furniture, and anything else you can pick up and move.

But that's just one example. You need to contact your local city or look on their website to see what they consider property.

Mobile Homes: A Category of Their Own

If you own a mobile home, it's categorized based on the kind of land it's on, and what you use it for.

If it's your primary residence, then it's treated just like any other home. But if it's a secondary residence, then things get more complex.

Then it comes down to the lay of the land (literally) do you own or rent the land this structure is on?

If you rent the land, then it's considered personal property and you pay property taxes on it. But if you own the land, then it's a real estate tax.

...So They Aren't the Same?

After looking at some of the detailed break downs of what's considered real estate tax and what's considered property tax, you probably feel like they aren't the same thing.

That's a fair assumption, based on all the differences. So here's our answer.

When most people talk about real estate vs property tax, they're asking about how it applies to their home. Not many people know that the taxes they pay on their motorcycle fall into the same category.

So, to clarify, real estate and property taxes are the same things when it applies to a residence, but they differ when you consider other items that you own.

The IRS wasn't built to be easily understood. If it was, they'd never make any money and both tax accountants and CPAs would be out of a job.

How to Value Property Taxes

Are you feeling a little overwhelmed now about all the taxes you have to pay? If you are, don't worry. Most mortgage lenders divide up your property tax and you pay it every month when you pay your mortgage.

The property tax amount you pay depends on where you live and how much this item is worth.

A home that's $3.2 million is going to cost a lot more in property taxes than a $200,400 family home. The same is true for taxed items.

This is pretty easy to determine unless you inherited or don't have the initial paperwork for one of your belongings. In that case, you can call someone to come assess it or do research about what other like-items in the same condition are worth.

Most of us buy our own belongings, so there are no calculations needed. If the boat you just bought was $85,000, then that's the value of the boat.

That's the easy part, here's where it gets tricky.

Assessment Rates vs Tax Rates

Let's stick with the same example, for clarity's sake. To figure out what you'll pay in taxes, you need to know your local assessment rate. This is usually provided by your accountant or on tax documents from your municipality.

So let's say you live somewhere with a high cost of living and the assessment rate is 80%. That means you can deduct 20% from the true value of your boat.

That's 20% of your boat you're not paying taxes on. 

Once you have the assessment amount, which is $68,000 in this case, then you look at the local tax rate.

Again, this is on local documents or websites. That tax rate is the percentage of the adjusted value you'll pay taxes on.

So if the tax rate is 3%, then your final tax cost on that boat is $2,040 per year.

Tired of doing the math yet? Us too. Now you see why so many people pay a tax accountant. Imagine having to figure this out for all your "property", especially if you own a business in that part of Florida.

Local Exceptions

Some cities and states are more lenient about their taxes. Especially if they're trying to encourage small business or reduce the income gap.

For example, some states have tax exemptions on your property. In those states, you only have to declare a certain amount of your combined property values.

Let's go back to the boat example. Say you live in a state that gives you an exemption of $20,000 of property taxes. Now you can subtract $20,000 off your combined, adjusted property value.

Finding Your Local Requirements

Since your mortgage takes care of your real estate taxes (most likely, but you should check) all you have to do is figure out the tax rate and adjustable rate.

If you want to do it yourself, then you'll do the calculations to figure out your combined property value for all your assets.

If you're taking your taxes to a professional, you still need to know the value of all your assets. Leaving something off or undervaluing it can cause issues with the IRS - which is something nobody wants.

We hope you enjoyed this guide on real estate tax vs property tax. If you have any other questions or need a tax accountant recommendation, ask your real estate agent

They're a surprisingly good resource for this sort of thing.